Most people understand that a traditional workers’ compensation insurance policy covers your employees on payroll. But it also extends to “Statutory Employees” performing labor for you.
So, let's start with the definition:
“A statutory employee is an individual who is specifically defined as an employee by statute.”
Examples of Statutory Employees:
Contract Labor / Independent Contractors
For now, let’s focus on casual and contract labor and the additional risk they pose to your traditional policy. We want you to be aware of the risks, before you enter into a working relationship.
Note: We’ll cover the other types of labor in separate articles.
Casual Labor is made up of individual's that are temporary, by definition. They are generally, but not always, working outside your usual course of trade. Further, as defined by the IRS, they are limited to $600 in compensation. For example, you may hire an individual:
for a special project, or
for a high season, or
as employee and they are terminated or left after working only a few days.
Remember to always pay them by check. It is a big red flag for insurance carriers when they see employers paying workers in cash. Further, always talk to them on safety precautions before they begin employment to help prevent an accident. Even if they only worked for you for a matter of hours, a workers’ compensation claim could wind up paying their wages for months or years, should an on-the-job injury occur.
Contract Labor is made up of individuals that you have chosen to pay on a 1099 instead of paying them on a W2 as an employee.
Note: Workers’ Compensation does not set the guidelines for whether someone is legally able to be paid on a 1099. That is between the employer and the State of Florida and/or the IRS. For more information about this aspect of Contract Labor, go to the following websites:
From the Florida Department of Revenue:
From the Internal Revenue Service:
For workers’ compensation, there are issues that get presented when you pay someone on a 1099. If they are injured, they are not technically your employee, and thus, you have less control about Return-to-Work. This can dramatically increase the cost of any claims that occur.
Regardless of how you pay a person, if they are performing labor for your firm, you can be held liable for any injury that occurs while on the job.
Remember, your loss ratio gets impacted when the carrier pays claims. Those reserves and payments go into your experience rating calculation and can increase your future premium for the next 3 years. Even more important, it can directly impact your ability to obtain coverage in the future.
There are lots of reasons that go into how you choose to pay the individuals/firms that do work for you. By understanding the impact that they can have on your worker’s compensation insurance, you cand develop a plan to deal with them properly.